Politics jolts markets as Japan stocks soar 4%, bitcoin leaps to record high with gold

Japanese equities, led by the Nikkei, surged over 4% to an all-time high of 47,734.04, while the yen depreciated 1.6% against the dollar, following Sanae Takaichi's election as LDP leader, which fueled expectations for fiscal stimulus and reduced bets on near-term Bank of Japan rate hikes. Simultaneously, gold and Bitcoin climbed to record peaks, driven by safe-haven demand amidst U.S. government shutdown fears, and oil prices rose after OPEC+ agreed to a modest 137,000 bpd production increase.

Analysis

TOKYO, Oct 6 (Reuters) - Japanese stocks surged more than 4% to an all-time high while the yen skidded on Monday after fiscal and monetary dove Sanae Takaichi was elected as leader of the ruling party, putting her on course to become the nation's first female prime minister. Gold climbed to a record peak above $3,900, while leading cryptocurrency bitcoin rallied to a lifetime high on Sunday, with investors increasingly turning to alternative assets as a store of value as the U.S. government shutdown frayed nerves. The Reuters Daily Briefing newsletter provides all the news you need to start your day. Sign up here. Advertisement · Scroll to continue Japan's Nikkei (.N225) soared as much as 4.3% to an unprecedented 47,734.04 in the first 15 minutes of trading after Takaichi bested the more moderate Shinjiro Koizumi in the Liberal Democratic Party's leadership vote on Saturday, stoking expectations for fiscal stimulus. The yen slumped 1.6% to the cusp of 150 per U.S. dollar while short-dated Japanese government bond yields slid to a two-week low as traders pared back bets on when the Bank of Japan will resume raising interest rates. Market-implied odds of a BOJ hike by year-end fell to 41% from 68% on Friday. A year ago, Takaichi criticized the BOJ's decision to raise rates as "stupid", although her recent rhetoric has been more restrained, saying only that central bank policy should be aligned with the government. Advertisement · Scroll to continue "We believe concerns among some investors that the next administration might pursue extreme fiscal expansion or exert political pressure on the BOJ are overblown," Morgan Stanley MUFG Securities economists wrote in a research report, noting that Takaichi's stance "appears closely aligned" with BOJ Governor Kazuo Ueda's "cautious approach" to policy normalization. Most other major share markets around the region were closed for holidays, including mainland China, South Korea and Taiwan. Hong Kong's Hang Seng (.HSI) declined 0.3%, ahead of a holiday on Tuesday. Australia's benchmark (.AXJO) eased 0.1%, though trading was thinned by holidays in several states including New South Wales and Queensland. U.S. S&P 500 futures pointed 0.2% higher, after the cash index (.SPX) rose to a record high on Friday. The U.S. dollar made up some ground on European currencies, capitalizing on its momentum against the yen to rebound from last week's 0.5% decline against a basket of major peers . The euro lost 0.25% to $1.1714, and sterling slipped 0.23% to $1.34385. Gold last changed hands around $3,904 after advancing as much as 0.9% earlier to a record $3,919.59. Bitcoin traded around $123,590 following its jump to $125,653.32 on Sunday. "The shutdown matters this time around," said Geoffrey Kendrick, head of digital assets research at Standard Chartered Bank. "This year, bitcoin has traded with 'U.S. government risks,' as best shown by its relationship to (the) U.S. Treasury term premium," he added. "I suspect bitcoin will rise throughout the shutdown," and will soon reach $135,000, Kendrick predicted. Oil prices rose after OPEC+ announced on Sunday it would increase production by 137,000 barrels per day (bpd) from November, the same modest monthly increase as in October, amid persistent concerns over a looming supply glut. In the run-up to the meeting, sources said Russia was advocating for an output increase of 137,000 bpd to avoid pressuring prices, but Saudi Arabia would have preferred double, triple or even quadruple that figure to regain market share more quickly. Brent crude futures rose 1.3% to $65.39 a barrel, while U.S. West Texas Intermediate crude was at $61.71, up by 1.4%. Reporting by Kevin Buckland Our Standards: The Thomson Reuters Trust Principles. A significant political shift in Japan has triggered a major market rally, with the Nikkei index (.N225) surging 4.3% to an all-time high of 47,734.04 following the election of fiscal and monetary dove Sanae Takaichi as LDP leader. This has fueled expectations for substantial fiscal stimulus and delayed Bank of Japan policy normalization, causing the yen to depreciate 1.6% towards 150 per U.S. dollar and market-implied odds of a year-end BOJ rate hike to fall from 68% to 41%. While the market reaction is sharp, analysis from Morgan Stanley MUFG suggests fears of extreme policy may be 'overblown,' noting Takaichi's stance appears aligned with the current BOJ governor's cautious approach. Concurrently, risk aversion stemming from a U.S. government shutdown has propelled alternative assets to record highs, with gold climbing above $3,900 and Bitcoin reaching $125,653.32, as investors seek stores of value. In energy markets, a modest OPEC+ production increase of 137,000 bpd, reflecting continued supply discipline, supported crude prices, with Brent rising 1.3% to $65.39.

Key Decisions for Investors

• Investors could capitalize on the new Japanese political landscape through long Japanese equity and short yen positions, reflecting expectations for stimulus and a dovish central bank, while remaining mindful that some analysts view the market's initial reaction as potentially exaggerated.
• The record highs in gold and Bitcoin, driven by U.S. government shutdown fears, reinforce their role as portfolio hedges against sovereign risk, warranting a review of allocations to these alternative assets as a diversifying strategy.
• The disciplined OPEC+ production decision provides a near-term support for crude prices, stabilizing the outlook for energy sector investments, though the reported policy disagreement between Saudi Arabia and Russia should be monitored as a potential risk to future cartel cohesion.
• The U.S. dollar's pronounced strength against the yen presents a clear trade based on policy divergence, but its mixed performance against other major currencies suggests investors should be selective rather than pursuing a broad-based long dollar strategy.